Tax Evasion and Productivity

Update

• Identification does not depend on functional form, i.e., CD
  • Show theory
  • Show Translog
  • Use deconvolution for CD and Hu et al. (2022) for non-parametric
• Maybe not able to use very large firms because they are very few. Even though it is true they are more sophisticated and they do not overreport costs, from a statistical perspective I can’t learn too much from them
• Use small firms as lower bound estimates. They cheat, but they cheat a little. Small firms are:
  • Less sophisticated -> Higher income owners are more likely to have firms engaging in cost overreporting
  • Lower probability due to the lower number of transactions -> ghost transactions are caped at the threshold to avoid being forced into e-transfer (cash)
• Pending update in the paper:
  • Estimate tax evasion at the firm level Hu et al. (2022)
  • Show tax evasion effect in misallocation framework

Outline

• Looking ahead
  • The Job Market
  • Miscellaneous
• JMP update
  • Ecuadorian data
  • Measure of size: 1) Data; 2) Carrillo et al.
• Next steps
  • Deconvolution

Looking ahead

• Plan: 2024 JM
  • Have JMP mostly done by the 2023 Fall
  • Apply to conferences by Early 2024 Winter
  • Present at conferences during 2024 Summer
  • Go to Job Market Fall 2024

Miscellaneous

• Funding, out by 2023 summer; ~$3K monthly (tuition, rent, services)
  • Teaching
  • Graduate Fellow rather than Graduate Student Assistant
• 2nd and 3rd papers
  • Are you OK working with multiple projects simultaneously?
  • 1. Summer Paper with new twist and 2) new idea

Misc 2

• Networking
  • Cold email: Targeting canadian universities with a PhD program located in cities with manufacturing sector
  • CEA
• Applying for PR (Canadian market)
  • Goal to submit docs by end of 2023 summer
  • Took English Test (CELPIP-G) (March 18, 2023)
  • Next: ECA’s
• Web page (done!), research (draft) and teaching (to do) statement

Upcoming presentations

• UWO Applied Seminar: May 24, 2023
• CEA, Winnipeg, Manitoba: June 2-3, 2023

JMP update

• Ecuadorian Tax data:
  • Agustin Carvajal, a former member of Ecuador’s Fiscal Research Institute (now extinct), is willing to provide access to data
  • Data can only be accessed in Ecuador
  • Paul Carrillo, author of Tax Evasion paper, agreed to talk
• Ecuadorian firm data:
  • Now using Manufacturing and Mining Survey (EMM), which includes small, medium, and large firms before, Structural Survey only covers large firms
  • Still fewer observations than Colombian data (Colombia’s manufacturing GDP is 2.5+ times bigger than Ecuador’s)

Measure of firm size

Who are the non-evaders? What’s the threshold of size?

• Data:
  • Last time: \(exp\left(E\left[\ln\left(\frac{\rho M}{PY}\right)\Big | S\ge s\right]\right)=\beta\)
  • Today: adding confidence intervals, keeping labor and capital, adding alternative measures of size lag of paid taxes, sales, and production
• Ecuador paper: eye-balling ~95-98 percentile of firm revenue

Carrillo et al., 2022

Summary

• Using Labor (number of employees, and number of employees \(x\) years, and somewhat less total wages) as measure of firm size is consisten with my model
• Different bias magnitude for different industries suggest different opportunities for tax evasion through cost overreporting — which makes sense!
• High \(\beta\)’s for top deciles of lag taxes, lag output, and lag sales suggest there might be a dynamic component in tax evasion
  • Firms might adjust their prior probabilities the next period. If they were not caught cheating, they might cheat again

Next steps

• Repeat exercise with Ecuadorian data
• Select industries in both countries
• Deconvolution using Labor as the measure of firm size
  • Colombia
  • Ecuador
• Model?
  • Structural model counterfactual estimation for showcasing in JM

Job interests

• What?
  1. Academia
  2. Research-focused non-academic: government agency, tech company, consulting
• Where?
  1. Canada
  2. Mexico
  3. USA